BHP flags cost-cutting, possible impairments at nickel unit as prices fall

The mining giant has flagged cost-cutting and potential impairments at its WA nickel division, amid falling prices that have already led to significant job losses across the local nickel sector.

BHP has slashed output guidance for its remaining Queensland coking coal mines and warned of cost-cutting and potential impairments at its WA nickel division – with mention of the company’s new $1.7bn West Musgrave nickel mine a notable absence from its results.

Falling prices have already led to significant job losses across the Australian nickel sector and BHP warned in its December quarter production report, released on Thursday, the division was struggling to deal with “structural changes” in the industry as rising Indonesian exports push down the nickel prices.

BHP said its operations at Nickel West are being “actively optimised” to mitigate the impacts of the falling nickel price, after the company recorded a sharp 24 per cent drop in the average realised price for nickel produced in WA, to $US18,602 a tonne.

“The nickel industry is undergoing a number of structural changes and is at a cyclical low in realised pricing. Nickel West is not immune to these challenges,” the company said.

“Given the market conditions, a carrying value assessment of the group’s nickel assets is ongoing, and a further update will be provided with the release of the financial results on 20 February 2024,” BHP said.

BHP’s quarterly results made no mention of the $1.7bn West Musgrave project, inherited through the company’s $9.6bn takeover of OZ Minerals last year, referencing only its Jansen potash project in Canada in its progress report on major projects.

While construction at the project is ongoing, and BHP has made no decision on whether it will pause or cancel ongoing work, the project is likely to be one of those receiving close scrutiny as BHP looks for ways to cut costs across the struggling Nickel West operations.

Nickel was trading at $US15,880 a tonne on the London Metals Exchange this week, down almost $US1000 a tonne over the last month, and almost half the price from a year ago.

This week Canada’s First Quantum Minerals flagged a significant pullback at its Ravensthorpe nickel mine in WA, ending mining operations and mothballing the high-pressure acid leach plant. That followed the closure of Panoramic Resources’ Savannah nickel mine in WA’s Kimberley Region by the company’s administrators early this year.

BHP on Thursday cut about 15 per cent from production guidance at its Queensland metallurgical coal mines at the back end of a tough few operating years for the state’s coal industry.

The company said it now expects its BMA division to produce 46 to 50 million tonnes of coking coal this financial year, down from previous guidance of 56 to 62 million tonnes.

BHP’s initial guidance included output from its Daunia and Blackwater mines, whose sale to Whitehaven is expected to close in early April. But the two mines produced about 2 million tonnes combined in the June quarter of 2023, indicating BHP’s broader guidance downgrade is in the order to 8 to 10 million tonnes – potentially more than 15 per cent.

BMA’s December quarter output was down almost 18 per cent on the same period in 2022, to 11.4 million tonnes, and total half-year production of 22.6 million tonnes was 17 per cent lower than the first half of the previous financial year.

BHP blamed the lower production, and subsequent downgrade, on a significant increase in planned maintenance and geotechnical problems at its Broadmeadows mine.

“Production was also impacted by an increase in prime stripping to improve value chain

stability following depleted inventory positions arising from extended weather impacts

and labour constraints over recent years,” the company said on Thursday.

The comments come as exports from BHP’s dominant iron ore division slipped in the December period as the company ramps up its South Flank mines and ties in work on improving its Pilbara rail system.

BHP shipped 70.3 million tonnes of iron ore from its Pilbara operations in the December quarter, down 3 per cent compared to the same time in 2022.

At the same time its mines produced 72.7 million tonnes of iron ore, down 2 per cent. With first half production and shipments of about 142.1 million tonnes, BHP said it remains on track to meet annual guidance of 282 to 294 million tonnes from its Pilbara mines.

BHP’s NSW thermal coal mine put in a strong performance, however, with half-year production of 7.5 million tonnes a 36 per cent improvement on the previous financial year. BHP said it expects the mine to come in at the upper end of its 13 to 15 million tonne production guidance for the full financial year.

But the company’s production figures also show how badly BHP missed the peak of thermal coal pricing as its Mt Arthur mine struggled in the second half of 2022. The NSW coal mine produced 5.5 million tonnes in the first half of the previous financial year – when the average realised price for its product was $US354.30 a tonne.

BHP received an average $US123.29 a tonne in the six months to the end of December 2023 – 65 per cent less than the same period in 2022.

BHP’s takeover of OZ Minerals last year is off to a promising start, with the company reporting record production from its newly acquired Carrapateena underground mine and a strong performance at the Olympic Dam smelter.

BHP’s South Australian assets produced 82,000 tonnes of copper in the quarter, and 153,700 tonnes in the first half of the year, and remain on track to meet annual guidance of 310,000 to 340,000 tonnes for the financial year.

BHP’s total copper output lifted 7 per cent to 894,000 tonnes for the first half, up 7 per cent compared to the previous financial year.

BHP shares closed down 84c to $45.73 on Thursday.